Why Acorda Therapeutics Stock Is Slumping Today

By George BudwellMarketsFool.com

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What happened

Shares ofAcorda Therapeutics (NASDAQ: ACOR) fell by more than 15% in pre-market trading Monday after the company announced that it will discontinue thedevelopment of its flagship drug Ampyra as a treatment for post-stroke walking difficulties. The company's decision is the result of a mid-stage study failing to provide compelling evidence of the drug's effectiveness in patients with walking difficulties after a stroke.

So what

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With a broader label for Ampyra off the table for the meantime, the company will now be forced to look toward its clinical pipeline to diversify its revenue stream moving forward. The good news is that the biotech's experimental Parkinson's disease drugs, tozadenant and CVT-301, have both entered late-stage trials that are expected to wrap up in late 2017. That said, Acorda's other clinical assets remain in the early- to mid-stage development phases, giving the company a razor-thin margin of error in terms of boosting its growth organically within the next few years.

Now what

As if this disappointing clinical news wasn't enough, Acorda's shareholders have the decision regarding theinter partesreview for Ampyra'sOrange Book-listed patents to look forward to next year.

The long and short of it is that the biotech's core revenue source could get hit with a major legal setback next year, possibly opening the door for cheaper generic versions to enter the market. And this potential black swan is arguably why the biotech's shares are currently trading at a rock bottom valuation of 1.6 times its 2017 projected revenue.

Despite its compelling valuation, though, Acorda's stock is perhaps a tad too risky at this stage to take the chance, meaning that investors might be best served by staying safely on the sidelines.

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George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.